A flexible core system built on the IBM Cloud for Financial Services platform can mean the difference between success and failure for many financial institutions.

Successful banks and financial institutions (FI) today realize that they are essentially technology companies operating under the rules of a banking license.

All FIs — regardless of size, scale and geographic location — need to be able to quickly launch new products, address the increasingly demanding needs of customers and regulators and operate as efficiently and cost-effectively as possible. Effective and innovative strategies, planning and execution are a must.

The core banking systems need to modernize and digitally transform by 2025 or risk dying an analog-business death. The good news is that while the overall process takes years, the benefits of an incremental modernization journey accrue every step of the way. A flexible core system built on the IBM Cloud for Financial Services platform can mean the difference between success and failure for many financial institutions.

What is the definition of a core banking system?

What aspects of the core banking systems manifest the problem?  

The majority of financial services suffer from the burden of legacy technology and inflexible applications that impede productivity gains. Fearful of the complexity and regulatory requirements, the security risks of re-platforming core systems and continuous compliance, many of them persevere with outmoded, costly legacy Information Technology (IT).  

Then, along came a succession of changes, including regulated data and payments exchanges, cross-border, customer data privacy implications, different time zones as part of geographic expansion, near-real-time payments and always-on digital channels. Rather than propagate these changes throughout their systems, FIs have tended to add new layers of technology to accommodate each new product, channel, function and geographic location.

In fact, close to 70 percent of IT budgets are relegated to simply run (“Hold” App modernization budget portfolio), leaving only <30 percent to grow and transform (“Buy”). Firms that prioritize retiring outdated technology (“Sell”) can reallocate budgets to invest in innovation.

As the center of gravity shifts from backend to the front office, modernization of core banking systems becomes inevitable across the financial services industry:

How should a core banking organization make the move to the multiphase modernization journey?

Modernizing legacy systems eliminates data silos so FIs can analyze customers’ data in real time, speed up processing, quickly deploy features and streamline updates. IBM Cloud for Financial Services is a solution platform and ecosystem program of FIs and their technology providers (ISVs and Fintech) that can transact and operate with confidence on the IBM public cloud:

• Achieve continuous compliance: Pre-configured controls enable continuous compliance, accelerate cloud journeys and reduce compliance costs.
• Accelerate innovation: Growing ecosystem of ISVs, Fintech and Insurtechs that are integrated with IBM Framework controls accelerate innovation while reducing risk.
• Operate with agility: Simplify hybrid architecture and run workloads anywhere with IBM Cloud Satellite, enabling highly portable hybrid cloud.
• Safeguard data: Confidential computing provides technology-assured safeguarding of data.

Overall, IBM Cloud for Financial Services addresses unique challenges, enabling clients’ business transformation with a progressive modernization approach. It is designed from its ASICs to its processes to address cybersecurity and regulatory challenges and provide the benefits and flexibility of a public cloud in a secure and compliant environment, enabling financial institutions, ISVs and Fintechs to host core banking applications and workloads in the cloud with confidence and trust:

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When banks fully or partially succeed in modernizing their core banking systems, they have realized numerous benefits, ranging from operational efficiency, reducing technology, operational and cybersecurity risks to a better customer experience.

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